Conventional Loans and LLC's (or other corporate entities)

[Mark Roberts]

I have a question about holding SF rental properties in an LLC (or other corporate entity) and being able to do a conventional refi after a hard money loan. I'm an extreme newbie so I apologize in advance if I use terms incorrectly.

I and two friends are interested in doing SF buy and holds via a partnership, LLC, LP, LLP, or other corporate entity where we each own equal shares. We understand the process of finding a deal, doing a hard money loan to rehab, and then doing a conventional loan refi after the rehab is complete.

Here's our problem.  We can't hold these properties in our individual names because we are all working together and we are equal stakeholders.  We can't hold these properties as a general partnership for legal liability issues associated with general partnerships.  So, it seems if we want to all be equal stakeholders in this, we have to have some kind of LLC, LP, LLP, etc.

But it's my understanding that if the properties are held in an LLC, LP, etc., the vast majority (or prehaps all) conventional lenders will not do a refi. And there's the rub. It looks like we have to do this under some type of corporate entity but, if we do, we are concerned that we will end up not being able to get decent refinancing terms after the hard money rehab.

So my questions are:

1.  How do you hold these types of properties with three equal stakeholders as I describe and still be eligible for a conventional refi?  Surely someone has found a way around this.

2. Will conventional lenders do a refi with an LLC, LP, etc. if each of the individual shareholders also personally guarantee the loan? I would think a lender would be more secure with an LLC as the debtor along with three guarantors rather than a single individual borrower. Am I missing something here?

3. Are there lenders that will do a refi for and LLC, LP, etc. after the rehab that will come close to the terms that you could otherwise get with a traditional conventional lender? In other words, since more traditional lenders won't do a refi with an LLC, are there lenders that will do it for a slightly higher interest rate and/or a lower LTV percentage?

4.  What are we missing?  Are we wrong in our assumptions?  Has anyone figured out a way around this?  Or are we just being overly nervous about our ability to get good refi terms.

With all of these questions, please understand that each of us are perfectly willing to give personal guarantees on the loans. I understand why any lender would be skittish about lending to an LLC, LP, etc. with no track record when none of the owners will do a personal guarantee. But I can't understand why a conventional lender would be willing to loan to a single individual but not to an LLC where not only that single individual but two others would also provide a personal guarantee.